Investors brace for September

TORONTO — Stock markets could be in for some tough sledding in the near term as investors contemplate trading in a month that sports a nasty reputation.

“Historically, September is the worst month of the year for stocks,” said Colin Cieszynski, senior markets analyst at CMC Markets Canada.

“Usually, what happens is you have a correction in May/June, you get a rebound in July, earnings season gives it a summer boost that carries you into the first part of August, so you start to see things roll over second half of August.”

At the same time, stock markets are looking a bit tired with indexes in New York and Toronto at or near record highs thanks to a better than expected second-quarter earnings season and a string of data pointing to a strengthening American economy.

“And that’s why people are being a bit more cautious,” added Cieszynski.

“Nobody really wants to take on any new positions. At the same time, they’re not running for the exits either.”

There are also concerns that a more robust U.S. economy could persuade the Federal Reserve to hike interest rates ahead of expectations. Markets have generally expected the Fed to move short-term rates away from near zero around the middle of next year.

And that’s one big reason why the big economic event of this week is the release of the U.S. government’s employment report for August on Friday.

But it’s not just job gains the market is looking for. Fed chairwoman Janet Yellen has said she is also worried about slack in the labour market and that’s why people will be digging deeper into the data, with emphasis on the participation rate, which has been in a percentage in the low 60s.

“The participation rate has stopped falling (and) its counterpoint, the employment to population ratio, has been finally grinding higher over the last year or so,” said Porter.

“The U.S. labour market is finally turning the corner and, quietly, the last six months have seen the strongest job gains over a six-month period in eight years.”

Canadian jobs data also comes out on Friday.

The Canadian economy created 42,000 jobs in July. That was a revised number as Statistics Canada said a reporting glitch was behind its original report that only 200 jobs had been created that month.